User Reviews

An Online Course

An Online Course

Sandy Gadow, a featured guest on CNN's "Open House," and a speaker on national radio as the escrow expert, has more than 25 years experience in escrow, title and real estate. A licensed mortgage broker and real estate sales associate, Sandy is a member of the American Land Title Association, the California Escrow Association, the National Association of Real Estate Editors and on the advisory council for the Escrow Career Center. She is the author of The Complete Guide to Your Real Estate Closing.  If you have questions for Sandy see our Ask Sandy page.

What is the best way to improve my credit score?

While there is no "best" way to improve your credit score, as each of the three main credit reporting bureaus may give a higher value to one type of action over another, there are several steps you can take, which done together, can potentially raise your score 75 points or more. These steps are not difficult, but they do take planning and perseverance. You don't necessary have to pay off all your debt, but rather you may need to reposition some debt, while paying down higher balances on other obligations. The reward is great, and can potentially save you thousands of dollars in lower-interest rate loans and time saving qualifying requirements. Most lenders base the interest rate they offer on the FICO score derived from the results found in the borrower's credit report. The higher the FICO score, in most all cases, the better the interest rate offered. Although determining your FICO score may seem arbitrary and complicated, there are still things you can do to improve your over-all score.

1. The first step to take is to obtain a free copy of your credit report from www.annualcreditreport.com. You can also call them at 877-322-8228 or write at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Next, carefully look over the report for any errors or incorrect information. Are there items listed in which you perhaps were a co-signor on a credit card, for example with a parent or former spouse? Can these be removed? Are there items listed as open, yet you have closed out those accounts? Are any previous mortgages which have been paid noted as paid in full? Are there any late or delinquent payments which you can dispute? Are there any creditor items which you can write a letter of explanation to be attached to your credit report? If you failed to pay off an account and it went into collection, pay it off as soon as you can. These accounts hurt your score and remain on your report for seven years.
   
   Go to each of the three main credit reporting bureaus (Experian, Equifax, and Transunion and correct any items you feel are incorrect. These credit bureaus allow you to correct most items on-line and corrections are often made within a few days time.
   
   
2. Keep your balances low. Do you have any credit cards in which the balance owing is close to the credit limit on the card? If so, can you pay down this balance? Try to limit the balance owing to no more than 30-40% of the credit limit. Can you make payments that are more than the minimum due? You can keep a small balance so that your positive payment history will continue to show up on your credit report. Can you delegate a small amount of savings you may have to pay off or pay down the balance on any large credit card balances you have? Can you pay off any high interest credit card debt with lower interest rate cards? In that way, you will be able to pay off the balance owing sooner. While closing out a credit item doesn't necessarily improve your credit rating or FICO score, paying down the balance definitely does help. You can improve your credit score by up to 100 points by paying off some credit items completely and paying down the balance on others.
   
   
3. Do you have numerous credit report searches on your report? You can "op-out" by contacting (www.optoutprescreen.com) and request that unauthorized persons not be allowed to access your credit report. Oftentimes repeated credit searches will lower your over-all FICO score. Your score is not affected when you check your own credit. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score. To find out more on how FICO scores are determined go to the Fair Isaac website, www. Myfico.com.

Remember: you can still obtain credit (a mortgage or home equity loan for example), with a low FICO score, but the trade off is that you will likely pay a higher interest rate and may be limited to the amount you can borrow.

Copyright © 2006 Sandy Gadow. All Rights Reserved. This article may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

Related Question

Can you give me an example of how a better FICO score will save me money?

Lenders base their lending criteria on your FICO score. The higher the number, the easier it will be for you to obtain credit. "Preferred borrowers" with FICO scores of 680 and higher, may typically pay less in closing costs, and be allowed to provide less documentation than a borrower with a lower credit score. Certain requirements may be waived for the preferred borrower, such as prepayment penalties and required reserves or "escrows" held by the lender.

For example, on a $216,000, fixed rate mortgage, for a 30 year term (rates may vary as to current market conditions):

For your individual loan criteria, go to www.myfico.com and select the "Loan Savings Calculator." You will be asked to specify your loan type, the loan details, and the state in which you are applying for a mortgage. You can then choose your current FICO score range to see the potential savings you will gain from improving your score.